TaxTMI 
TaxTMI 
2024 (12) TMI 1336
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....royalty under section 9(1)(vi) of the Act and under Article 12(3) of India-Singapore Double Taxation Avoidance Agreement ('DTAA'), without appreciating that the said receipts are not in relation to use or right to use of a tangible property or equipment. Ground No. 1.2 : That on the facts and circumstances of the case and in law, the Ld. AO erred in making addition and the Ld. DRP erred in confirming addition to the income of the Assessee in relation to receipts from business support services under sub-contracting of personnel amounting to INR 3,84,54,562, receipts from external consultants' services amounting to 3,07,307 and travel-related receipts amounting to INR 19,96,671 as 'Fee for technical services' under section 9(1)(vii) of the Act and under Article 12(4) of India-Singapore DTAA, without appreciating that: a) The said services are neither technical nor consultancy in nature; and b) The said services do not make available any technical knowledge, experience, skill, know-how, or processes etc. Ground No. 1.3: That on the facts and circumstances of the case and in law, the Ld. AO erred in raising tax demand of INR 2,48,118 without appreciating the facts of the case a....
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....India as per Article 7 of the India-Singapore DTAA. Accordingly, the assessee claimed a refund of the taxes withheld while filing the ROI for the year. 7. The ROI was picked up for scrutiny assessment by issue of notice u/s 143(2) of the Act on 29.06.2021. Thereafter, multiple notices u/s 142(1) of the Act along with detailed questionnaire were issued by the Assessing Officer. Further, the Assessing Officer issued a show cause notice dated 08.03.2022, requiring the assessee to show cause as to why the receipts should not be held taxable as Royalty/FTS under the Act as well as the DTAA. Not satisfied with the reply of the assessee, the Ld. AO passed a draft assessment order u/s 144C(1) of the Act dated 29.09.2022, proposing an addition of Rs. 6,04,01,143/- to NIL income returned by the assessee as follows: 8. Aggrieved, the assessee went in appeal before the DRP which confirmed the view taken by the Assessing Officer and upheld the findings. S. No. Nature of service rendered Basis for Taxation Amount (INR) 1. Access to data center for data storage facility Royalty under section 9(1)(vi) of the Act and under Article 12(3) of India - Singapore DTAA. 1,90,33,349 2. Provisio....
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....ernet for accessing the data stored in relation to its customers. 13. The ld. counsel for the assessee, referring to the concept of "the use of or right to use any scientific equipment" as provided in Article 12(3) of the India-Singapore DTAA for invoking "Royalty" provisions, submitted that provision of Data center related services does not result in use or right to use of any equipment or process by Criteo India. Considering that such receipts do not entail use or right to use of a tangible property or equipment, the same does not partake the nature of 'royalty' as envisaged under clause (iva) of Explanation 2 of section 9(1)(vi) of the Act or under Article 12(3)(a) or 12(3)(b) of the India- Singapore DTAA. 14. The ld. counsel for the assessee further submitted that the expression 'use' or 'right to use' has been considered by the Courts, Authority for Advance Ruling('AAR'), Commentary on the Model Tax Convention by the Organization for Economic Co-operation and Development ('OECD'), Prof. Klaus Vogel commentary on Double Taxation Conventions on Royalty, 2001 report of the Technical Advisory Group ('TAG'), all of which unequivocally and consistently state that rendition of a se....
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....sertion of Explanations 5 and 6 to section 9(1)(vi) of the Act vide the Finance Act, 2012. However, no similar amendment was made under the tax treaties. In this regard, the assessee submitted that the data center related receipts received by the assessee are not taxable as per the provisions of India-Singapore DTAA as the Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be imported into the tax treaties. For this proposition the ld AR relied on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal Nos. 8733-34 of 2018) and Hon'ble Delhi High Court in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V. (supra) and the recent Judgment of the Hon'ble Delhi High Court in the case of Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi). where it was held that such Explanations cannot be read into the tax treaties. 21. Further, reliance was also placed on the decision of the coordinate bench at Mumbai in the case of Dy. Director of Income Tax vs. Savvis Communication Corporation [2016] 69 taxmann.com 106 wherein it was held that payment made for web hosting services (incl. ....
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....y' since such services do not result in transfer of a copyright. 7. Vishwak Solutions (P.) Ltd. [2015] 56 taxmann.com 158 (Chennai ITAT) Payment for storage and retrieval of data is towards hiring of storage space and not taxable as 'royalty' and can only constitute business income which in the absence of PE cannot be taxed. 8. Atos Information Technology HK Ltd. 2022] 138 taxmann.com 439 (Mumbai ITAT) Receipts for providing services/facilities for data processing through computer hardware and software to banking entities cannot be held as Royalty/ FTS since there was neither transfer of any of right in respect of any patent or process or trademark or any similar property. 23. Per contra, the ld. DR relied upon the orders of the authorities below. The ld DR relied on the Explanation 2 clause (iva) and Explanation 5 of section 9(1)(vi) to forcefully argue that the services provided by the assessee to Criteo India falls under the definition of Royalty as provided in the Income Tax Act. The ld Dr relied on the decision of Cargo Community Network Pte. Ltd relied upon by the AO. The ld DR submitted that as the assessee is charging depreciation etc of the Data Center from the Cr....
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....ces, whether the same is "Royalty" or not. We find that the Article 12(3) of the India-Singapore DTAA defines the term 'Royalty' as follows: "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) Any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) Any industrial, commercial, or scientific equipment, ......" 28. Clause (iva) of Explanation 2 of section 9(1)(vi) defines the meaning of "Royalty" as "the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;" Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control ....
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.... Accordingly, the payment does not amount to 'Royalty' for use of equipment. This principles of control and possession while interpreting the definition of Royalty have also been affirmed by the Hon'ble Jurisdictional High Court of Delhi in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V. [2016] 68 taxmann.com 8. In view of the decision of Engineering Analysis Centre of Excellence Private Limited (supra) and Hon'ble Delhi High Court in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V., we are of the considered opinion that that the provisions of Explanations 5 and 6 to section 9(1)(vi) cannot be read into the India-Singapore DTAA and the principles laid down in Asia Satellite Telecommunications Co. Ltd. would still hold good in the context of tax treaties. Hence, the receipts of the assessee from data center activities cannot be held to be one for 'use' or 'right to use' any equipment and/or process under Article 12(3) of the India-Singapore DTAA. 31. The above proposition was also accepted by the Hon'ble Delhi High Court in its recent Judgment in the case of Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi) where with respe....
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....data centers with Criteo India, nor imparts any information relating to them. In view of the above discussion and judicial pronouncements, we hold that the data center related receipts received by the assessee are not taxable as "Royalty" as per the provisions of India-Singapore DTAA as the Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be imported into the tax treaties. We accordingly direct the AO to delete the said addition. 34. On the issue of provision of advertising space purchased from third party publishers, we find that the assessee has entered into contracts with third-party publishers (such as Google, Facebook, Twitter etc.) outside India to purchase online advertising space. Such space is used to display the advertisement banners of the assessee's customers (the advertisers) to the internet users/ online shoppers in Singapore. The control of such advertising space continued to remain with the third-party publishers. The assessee does not get any right to the advertising space of the third-party publishers. 35. In certain circumstances, when Criteo India exhausts the online advertising space purchased by it from the third-party publishers, Criteo India appr....
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....ra Urban Ladder [IT Appeal No. 615 (Bang.) of 2020, dated 17-8-2021] Interactive Avenues Pvt Ltd [TS-602-ITAT-2022(Mum)] Myntra Designs Pvt. Ltd. [TS-833-ITAT-2021(Bang)] Sical Logistics Ltd. v. Asstt. DIT [2017] 78 taxmann.com 158 (Chennai - Trib.) M/S Geo Connect Ltd. (54 ITR 481)(2017 ISRO Satellite Centre [TS-82-AAR-2008] 38. Per contra, the ld DR argued that Criteo India directly accesses and uses the equipment and advertisement space for uploading the contents on the server/ advertisement space, which means that Criteo India has 'used' the server for a desired purpose. Therefore, to that extent Criteo India enjoys the right to use the server/equipment/ advertisement space to upload the advertisements. The ld DR submitted that the AO rightly held that the receipts from provision of advertisement space as 'royalty' under section 9(1)(vi) of the Act and as per Article 12(3)(b) of the India-Singapore DTAA. 39. Having heard the rival submission we find from the perusal of the Schedule 1 of the inter-company Service Agreement enumerating the list and description of services rendered, that the assessee has provided Criteo India with only advertising spaces purcha....
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....DTAA only if such services would 'make available' technical knowledge, experience, skill, know-how etc. only where the person availing the services is enabled to apply the services availed in his own right without recourse to the person providing such services. 44. The ld AR argued that in order to categorize the income as FTS, the twin tests of consideration having been paid for rendering any managerial, technical or consultancy service; and such service should make available technical knowledge, experience, skill, know-how, or processes to the service recipient as a result of provision of such services, are not satisfied at the same time. 45. The ld AR submitted that the services rendered by the Assessee to Criteo India has not made available any technical knowledge, experience, skill, know-how or process which would have enabled Criteo India to apply the technical knowledge or skill contained therein independently. Further, such services are required by Criteo India on a recurring basis. The ld AR relied on the decisions of Hon'ble Karnataka High Court in the case of CIT v. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar) and the Hon'ble Delhi High Court in the case ....
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....t; Financial Management; Control Support and Oversight; Statutory and Tax Compliance support and Oversight; Human Resources support and Oversight; Customer and Relations Management Support and Oversight; Project Management Support. 8. Herbalife International India (P.) Ltd. [2024] 164 taxmann.com 81 Bangalore ITAT - Provision of administrative services as part of group policies to ensure efficiency and effectiveness. 9. Shell International B.V [2024] 160 taxmann.com 761 Ahmedabad ITAT - HR shell people support services like open resourcing, HR management services, personnel record maintenance, Shell Open University, etc. 10. Invesco Holding Company (US) Inc.[2024] 165 taxmann.com 330 Delhi ITAT - Routine IT, management and other support. 11. Tagit Pte Ltd. [2024] 159 taxmann.com 93 Delhi ITAT General Management Services; Product Strategy and Development Oversight; Sales and Marketing Support and Oversight; Financial Management; Control Support and Oversight; Statutory and Tax Compliance support and Oversight; Human Resources support and Oversight; Customer and Relations Management Support and Oversight; Project Management Support. 48. Per contra, the ld. DR argued ....
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....ily providing services in the nature of human resource, finance, accounting, business and legal support, statutory compliance, information technology related services, financial planning and analysis functions. The assessee provides such services again on a recurring basis from outside India. Further, such services are rendered because Criteo India does not have a full-fledged finance, legal, HR, IT, business support teams of their own. 52. Having heard the rival submissions and considering the facts of the case, the issue that requires adjudication is whether such receipts on Business support services are in the nature of FTS and whether the assessee has "made available" the technical knowledge, experience etc. under the DTAA. Article 12 (Royalties and Fees for Technical Services) of the India-Singapore DTAA defines FTS in Paragraph 4 to mean: "payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment d....
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....dies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." (emphasis supplied) 54. The above view is also upheld by the Hon'ble Delhi High Court in the case of International Management Group (UK) Ltd.[2024] 164 taxmann.com 225 (Delhi) wherein the following remarks regarding meaning of the term 'make available' have been made: "93. As we read Article 13(4)(c) of the DTAA, it becomes manifest that the mere furnishing of service would not suffice and a liability of tax would be triggered only if the technical or consultancy service were coupled with a transfer of the expertise itself. The expression "make available" must be construed as an enablement, conferral of knowledge and which would lead to the payer becoming skilled to perform those functions independently. The make available condition would be satisfied if the services rendered entails equipping the recipient with skill and evidencing an apparent conferment, alienation or transfer of skil....
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....found that the services rendered by the assessee do not make available knowledge, experience, know-how to the recipient and this is clearly visible when one examines the nature of the services rendered and the consequential benefits obtained by the recipient." 56. In the instant case, we find that the receipts in question are for rendering the services categorized as Business support services which pertains to routine administrative services and that too, on a recurring basis year-on-year and thus, cannot have any enduring benefit for Criteo India as held by the Assessing Officer. We find that the inter37 company agreement was effective since November 10, 2016 and the said support services are being provided to Criteo India year-on-year since the inception of the Agreement. We also find that travel related services was merely for supervisory activities and for very short duration. We are, therefore, of the considered view that such services, having a recurring nature, does not satisfy the "make available" clause. Mere incidental advantage to the recipient of services is not enough. The view is supported by the decision of Hon'ble Delhi High Court in the case of Bio-Rad Laboratorie....
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....er to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider." 57. In the light of the judicial precedents referred to above, we are of considered opinion that in order to invoke 'make available' clause, to fit into the terminology "making available", the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Thus, the technical or consultancy services may be said to be 'made available' only when the service recipient is enabled to apply the technology/ skill/ services in future without recourse to the service provider. A mere incidental advantage to the reci....